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and in good faith is made on a case-by-case basis based on the
facts and circumstances. Reliance on an appraisal of the value
of property does not necessarily demonstrate reasonable cause and
good faith, depending on the assumptions made in the appraisal.
Sec. 1.6664-4(b)(1), Income Tax Regs. For example, the appraisal
may not be based on an assumption that the taxpayer knows, or has
reason to know, is unlikely to be true. Sec. 1.6664-4(c)(1)(ii),
(2), Income Tax Regs.
Respondent argues that petitioner knew the statement in the
letter was incorrect when supplying the letter to the appraiser.
Respondent therefore argues that petitioner did not in good faith
rely on Petroff’s appraisal of the Grist Mill property.
Petitioners’ counter respondent’s argument by contending that the
conservation easement deed contains no references to a donation
of floodplain property, but instead a limitation to build on 30
lots or less, and that petitioners have not attempted to take a
donation based on an assertion that homes could have been built
in the floodplain.
We agree that the issue of whether petitioner could have
built 62 lots “by-right” is of less concern if the valuation was
conducted on the theory that the property could have been
rezoned. However, despite petitioners’ contentions, by
submitting Petroff’s appraisal, petitioners indicated to
respondent that they could have built on the floodplain.
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